Why corporate Canada needs to kick into gear after last month’s job crash

OTTAWA • Remember all that talk of “dead money” on corporate balance sheets and too few people on company payrolls?

And how with businesses not investing enough on machinery and workers, Canada’s economy was having to rely on meager job creation from a restrained public service to help sustain any kind of recovery?

Well, now it’s crunch time.

That record 74,000-job crash in the public sector that we heard from in July may have brought with it some new clarity — and urgency — to the country’s post-recession reality.

Yes, Canada has recouped all the job losses, and then some, from the downturn — as Finance Minister Jim Flaherty is fond of telling us — but that was before those government restraint programs, intended to dig us out of a fiscal-stimulus deficit pit, really began to kick in.

“You can’t live on the public sector alone,” says Finn Poschmann, vice-president of the C.D. Howe Institute, the Toronto-based think-tank.

“Since 2006, public-sector employment growth has outstripped private-sector employment growth — which is unsurprising given the recession and the stability of public-sector employment relative to private-sector employment.”

Not any more.

Between July’s massive public-sector tumble and a year earlier, there were eight months in which government shed jobs and only two months in which employment grew in the sector.

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At the federal level alone, 10,980 positions have been eliminated since the Harper government brought down its 2012 budget. By 2015 — when Ottawa hopes to balance its budget — that number will rise to more than 19,200. The cuts have been across the board, but departments most affected have been Public Safety, Canada Revenue, Human Resources, Health and National Defence.

Attrition in the public sector would account for a chunk of those lost positions — baby boomers are reaching retirement age, after all, even though many are likely to remain in the labour market through contract work.

“Rising federal employment, because it tends to be program-oriented rather than service-oriented, is not a good thing for the economy — except for transport, trade, customs and immigration sort of things, where you’re very much delivering a service to the public,” said Mr. Poschmann.

“There is hope that the engine of future growth of the Canadian economy will be the private sector activity.”

That’s if all goes according to pattern.

Frances Woolley, an economics professor at Carleton University in Ottawa, said during a recession “the first thing that falls is private-sector employment. Public-sector employment kind of holds steady.”

“But then what happens, as you start coming out of the recession, you start seeing the private sector being more stable or growing,” she said. But then governments, which build up deficits during a downturn, “start cutting back a bit.”

As a result, corporate Canada needs to kick into gear.

However, business leaders are still wary of spending their “dead money” — a phrase coined by former Bank of Canada governor Mark Carney — and are looking for improving signs that the global economic recovery is on a stable track.

It’s a very muddled, muddled environment

As Mr. Carney’s successor, Stephen Poloz, put it in his first speech in June, companies “are feeling comfortable, are watching their orders, they’re watching their foreign customers, they’re getting into new markets, so they are growing, but they’re being understandably cautious, given what they’ve been through.”

Derek Burleton, deputy chief economist at TD Economics, said “we may see the private side pick up a bit in the second half of this year — given, hopefully, some knock-on effects to a stronger U.S. performance rippling through.”

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This is important because, although government jobs “are relatively well-paying [and] they come armed with decent benefits,” he said “the private-sector performance gives you a better idea of how the underlying market economy is doing and, therefore,[analysts] put more importance on that.”

Mr. Burleton expects private-sector job creation will be offset somewhat by a “moderate decline” in the public sector.

“That’s certainly not inconsistent with some of the [government] budgets we have seen,” he said. “And that would leave us with a rate of employment growth that is consistent with the [expected] sub-2% [annual] economic growth as a whole.”

Paul Moist, president of the Canadian Union of Public Employees, which represents 627,000 government workers, said, for the time being, “budgets are driving restraint.”

“We may be seeing provincial restraint catch up with the 2012-2013 federal budgets,” he said.

“There’s been a recovery, of sorts, but when you factor in real wages for most workers they have been flat for a couple of decades and there’s an increase in part-time across the board, and there are less people working as a percentage of the population, it’s a very muddled, muddled environment.”

Mr. Moist adds: “There’s always a lag time. Recession in the economy hits the public sector something like two to three years later, and there are recession-like conditions in many provincial economies right now.

“For every positive announcement, there are two or three disconcerting announcements.”

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Why corporate Canada needs to kick into gear after last month’s job crash

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